Fed drops fed funds rate half point!

[sweeps]

Now the question is how will the savings rates be affected...

[thekid]

You'd think the viable answer to the damages of years of too loose credit would not be lower interest rates!

This seems very shortsighted!

[DebbieL]

This will only prolong the pain. The suffering to come is inevitable now. They should stop trying to manipulate everything.

[sweeps]

I agree.

The stock market is happy though. The Dow is up 250 right now. I see the Fed also cut the discount rate by a half point. I didn't think Ben would be this aggressive.

[rooskers]

Well after all the buying I had been doing on every downturn today is a great day for selling Easy concept market goes up I sell, market goes down I buy.

Note - 95% of my investing is for long term and I could care less what happens today but I save 5% for fun.

[Broken Arrow]

Hey sweeps! Long time no see. Where the heck have you been?

I agree with Debbie as well. I think the Feds really had no choice on this one.

Morphine for the market.

[Ima saver]

Yes, I wonder if this will hurt the savings rate??

[thekid]

Morphine for the market.

[sweeps]

Hey BA! Went on hiatus for a little while. I'm a dad for the second time! Great to see you again.

[jIM_Ohio]

another half point or so and I might refinance mortgage cheaper than 5.75%

[safari]

Should I hurry and buy a 1-year CD at Countrywide Bank? It's currently paying 5.65%. Link

[sweeps]

Should I hurry and buy a 1-year CD at Countrywide Bank? It's currently paying 5.65%. Link

If it was me and I'd been eyeing a CD, I'd pull the trigger NOW. But that's just me.

[Aleta]

I think that a quarter of a point would have been better. It sounds too drastic to me. Of course it will affect the savings rates. If they drop 1/2 of a point, so will your savings rates. I do think that they have to do something about the interest rate on the houses though. Just can't imagine how anyone could afford to buy a home at the prices they're going for now. This is especially difficult for first time and younger buyers who are having a hard time coming up with at least a 10% down payment, not to mention the closing costs.

[sweeps]

Of course it will affect the savings rates. If they drop 1/2 of a point, so will your savings rates.

Not necessarily. High yield savings rates are correlated to the fed funds rate, but not as closely as one might think. ING is a classic example of an online bank that marches to its own drum.

I do think that they have to do something about the interest rate on the houses though. Just can't imagine how anyone could afford to buy a home at the prices they're going for now. This is especially difficult for first time and younger buyers who are having a hard time coming up with at least a 10% down payment, not to mention the closing costs.

another half point or so and I might refinance mortgage cheaper than 5.75%

Actually the fed funds rate only affects short-term interest rates. Long-term and mortgage rates are not well-correlated to the FF rate. In fact, if the Fed wanted to ensure lower long-term rates, they would raise the short-term rate. This would tell the bond market that fighting inflation is a higher priority than fighting recession, which in turn causes a bond rally, which in turn lowers long-term bond rates, which in turn lowers mortgage rates.

[DebbieL]

Actually, this is the worst thing they can do for housing affordability. This is a big part of what caused the mess (lax lending standards and record low interest rates). Without this artificial manipulation of the markets things would come back down to earth (housing prices) a lot quicker. As I said before, this is only prolonging the inevitable pain. Higher interest rates will equal lower (and more affordable) housing prices, not the opposite. I'd rather be on the hook for $250k at 8% than $500k at 4%.